Blaustein v. Pan American Petroleum & Transport Co. , 293 N.Y. 281 ( 1944 )

Indisputable evidence leads irresistibly to the conclusion that Standard Oil Company (Indiana), herein referred to as Indiana, dominated and controlled Pan American Petroleum Transport Company, herein referred to as Pan Am, through directors elected by it as majority stockholders. That was implicit in all the discussions and negotiations between Indiana, Pan Am and the Blausteins which culminated in the "Definitive Agreement." All the parties so understood and they could not have supposed otherwise. Indiana had previously owned 96% of the stock of Pan Am and it is evident that it did not acquire that stock as an investment, but for the purpose of operating Pan Am in co-operation with other corporations which it controlled, if not, indeed, as part of a single system. When negotiations began with Blausteins for a "reorganization" of Pan Am, the officers of Indiana, not the officers of Pan Am, dominated the discussions and decided upon Pan Am's future. Indiana was itself a party to the "Definitive Agreement" and undertook that Pan Am would be managed in accordance with its terms. More than that, Indiana assumed on its own behalf financial obligations towards Blausteins which would have been unfair to its own stockholders if Indiana had not controlled the policies of Pan Am. Instinct in every line of the agreement and in all that was said and done is the underlying assumption that Indiana would control and dominate the majority directors to be elected by it and Blausteins would control and dominate the directors elected by them. The undisputed evidence indicates unmistakably that Indiana and the Blausteins thereafter exercised control and domination as the parties had expected. Indiana elected as directors of Pan Am men who were officers or directors of Indiana or of subsidiary corporations of Indiana, and in important matters the policies of Pan Am were decided by Indiana.

Blausteins and other minority stockholders cannot complain that Indiana dominated and controlled Pan Am; but, because Indiana did exercise domination and control through the directors it elected, Indiana became subject to the same fiduciary obligation which a director assumes towards the corporation and its stockholders. Pan Am and its minority stockholders may complain if Indiana exercised its control for its own benefit and without honest desire to promote the interests of Pan Am. The serious question presented upon this appeal is whether the evidence establishes dereliction in that respect on the part of Indiana.

The Trial Justice who saw and heard the witnesses found that the evidence established that Indiana and the directors elected by it were derelict in some instances. The Appellate Division reversed these findings and the majority of this court agrees with the Appellate Division. It seems to me that for the most part the weight of evidence sustains the findings of the Trial Justice. Whenever there was conflict of opinion between the directors controlled by Indiana and the directors controlled by Blausteins, the directors controlled by Indiana voted for delay, and always Indiana and its subsidiaries profited by the delay. That consideration is not decisive, but in my opinion it gives strong support to the findings and conclusions of the Trial Justice. Nevertheless, where the evidence is conflicting and there is room for difference of opinion I would probably not dissent from a determination by this court that the weight of evidence lies with the contrary conclusions of the Appellate Division.

Even so, upon the undisputed evidence and conceded facts, I think that the plaintiffs have established their right to a decree that Indiana holds as constructive trustee for Pan Am all properties in the East Texas field which were purchased by Indiana, or its subsidiaries, after Pan Am was "reorganized" and which were thereafter used to supply oil to the refining plant of Pan Am. I assume here that the decision of Indiana, or the directors of Pan Am, to delay the organization of a subsidiary of Pan Am for oil production in Texas and to delay the purchase of oil wells in Texas was due to honest and reasonable doubt as to the legality under the Texas anti-trust laws of proposed corporate action to carry out in that respect the plan to make Pan Am a fully integrated oil company. The fact remains that all the directors agreed that Pan Am should proceed to acquire and operate oil properties in Texas if upon further consideration it appeared that production of oil by Pan Am would be lawful. The question of law was submitted to Texas counsel and while corporate action by Pan Am was held in abeyance Indiana through its subsidiaries purchased oil wells intended to be used and which have been used to supply to Pan Am oil required by its great refining plants. Thereafter all the directors agreed that Pan Am, or a subsidiary, could legally buy and operate oil wells in Texas. Its opportunity to buy was limited to oil properties which Indiana had not thus acquired in the interval.

This is not a case where proof is made that after the properties were acquired by Indiana it appeared that the properties would have been useful in the business of Pan Am. The proof establishes conclusively that when Indiana acquired the properties it knew that they would be useful if not indispensable in the business of Pan Am and that Pan Am could not acquire the properties at that time because its directors, controlled by Indiana, had not yet determined whether Pan Am could legally buy them. I agree, almost wholly, with the general rules of law set forth in the majority opinion. Our difference of opinion concerns the application of these rules to the facts in the case. In my opinion the plaintiffs have proven conclusively that under the general rules formulated in the majority opinion and the cases cited in support of these rules, Indiana has usurped some profitable business opportunities which rightfully belonged to Pan Am, and the plaintiffs have established by the weight of evidence a right to relief in other instances though, perhaps, not to the full extent awarded them at Special Term.

The judgment of the Appellate Division should be reversed.

LOUGHRAN, CONWAY and DESMOND, JJ., concur with LEWIS, J.; LEHMAN, Ch. J., dissents in opinion in which RIPPEY, J., concurs; THACHER, J., taking no part.

Judgment affirmed, etc. (See 293 N.Y. 763.)